New Week Starts With Another Full Market Halt

Last week it was the Nasdaq, today it was the Eurex Exchange, which broke down "due to technical issues" shortly after 2 am Eastern and which was offline for over an hour. Further keeping a lid on liquidity and upward momentum is today's UK market holiday which has resulted in a driftless move lower across European stocks, following a red close in the Nikkei225. It only means that the inevitable ramp up in the disconnected from all fundamentals and reality market will have to come only during US trading hours when the NY Fed trading desk steps up its POMO-aided levitation.

The key events in this otherwise quiet week over the weekend were the geopolitical tensions in the rapidly escalating Syrian situation, continue to hold the limelight, as UN inspectors have formally entered Damascus to inspect alleged chemical weapon usage, amidst high tension between the West, the Middle East and Russia. Russia’s foreign minister Lavrov is due to hold a press briefing on the topic today at 1300BST/0700CDT after his state reiterated their opposition to military intervention over the weekend. The geopolitical stand-off has kept the energy complex elevated throughout today’s trade, with Brent crude futures holding the USD 111/bbl mark ahead of the NYMEX pit open later today.

This year's Jackson Hole symposium came and went with virtually zero actionable impact, as the key topic was the central bankers' admission that they are all clueless about how to best unwind global QE, and the conclusion that they have cornered themselves as any unwind will mean dramatic risk upheavals (see Emerging Markets).

What few carbon-based traders will be trading, will have their attention focused on today’s US Durable Goods Orders at 1330BST/0730CDT, expected to fall from June’s artificially inflated +4.2% to -4.0% as Boeing’s bumper Paris Airshow orders are factored out.

Overnight highlights bulletin from Bloomberg:

  • Treasuries steady, with yields 5Y and longer holding near midpoint of last week’s ranges before U.S. sells $98b of notes starting with $34b 2Y tomorrow.
  • Fed officials rebuffed international calls to take the threat of fallout in emerging markets into account when tapering U.S. monetary stimulus
  • Price gains of stocks in the S&P 500 are outpacing profits by the fastest rate in 14 years as the bull market in stocks ages
  • Bank of England Deputy Governor Charlie Bean said officials are sending a “clear signal” they won’t raise rates anytime soon as he acknowledged some surprise at the response of investors to that message
  • The market for USD junk bonds has expanded more than eightfold since the end of 1997 to $2t from $243b, according to Morgan Stanley, as investors seek relief from the financial repression brought on by near-zero interest rates
  • Hedge funds and other speculators raised bets on higher gold prices to the most in six months as signs of slowing U.S. growth drove bullion above $1,400 an ounce for the first time since June
  • Japanese Prime Minister Shinzo Abe will make a decision on a sales-tax increase by early October, before a gathering of Asia-Pacific leaders in Indonesia, according to Economy Minister Akira Amari
  • Radioactive water spills at the wrecked Fukushima nuclear plant have forced Japan’s government to lay out what it called “emergency measures,” signaling that it’s taking control of the disaster recovery from Tepco, the plant’s operator
  • Sovereign yields mostly lower, EU peripheral spreads wider, Euro Stoxx Banks -1.5%. Nikkei -0.2%, JPY paring gains to trade at 98.65. Shanghai Composite gains 1.9%. European stocks, U.S. equity index-futures fall. WTI crude, copper higher; gold falls

Key headlines from RanSquawk:

Global Headlines

Speaking from Jackson Hole, top officials warned that global financial stability is at risk as central banks draw back from ultra-easy policies, because emerging markets lack defences to prevent potential huge money outflows. (Newswires)

Asian Headlines

Chinese stocks outperformed overnight as Japanese stocks fell, after the weekend saw Shanghai and Hong Kong listed companies report strong profits for the latest quarter, as Sinopec topples PetroChina with expectation beating earnings.

EU & UK Headlines

Greek finance minister said that the country may need a further EUR 10bln in extra support but would not expect any loan to come with conditions attached. (Proto Thema)

ECB's Demetriades says cannot rule out another ECB rate cut. (Newswires) However, Nowotny and Weidmann of the ECB have played down the chances of a rate cut in recent weeks.
Barclays prelim month-end extensions Euro agg at +0.03yrs
Barclays prelim month-end extensions UK Gilts +0.07yrs

US Headlines

Fed's Lockhart (non-voter, dovish) said it is not a foregone conclusion that the Fed will taper in September, and it could be October or December. Lockhart added that the decision to taper in September depends on no really worrisome signals on economy between now and September 18. (Newswires)

Barclays prelim month-end extensions for US Treasuries at +0.11yrs


Equities drift lower amongst thin trade with UK participants away from the market, and traders being deterred by the Eurex's technical error earlier this morning. Telecoms in Europe hold their ground after Carlos Slim and America Movil announced their support for Telefonica's sweetened deal for KPN's E-Plus unit. The revised terms of the deal raise the value to EUR 8.55bln from EUR 8.1bln previously.

The Italian FTSE-MIB is underperforming today, (down as much as 2% whereas the DAX down 0.25%) with Mediaset shares the biggest decliner. Italian banks have fallen throughout today's session as the IT/GE 10yr yield spreads widens and BTP futures underperform ahead of this week's longer-dated issuance.

Elsewhere in the US, Amgen have announced they are to acquire Onyx Pharmaceuticals in a USD 10.4bln deal in order to accelerate Amgen's exposure to the cancer treatment market. Both Amgen and Onyx Pharmaceuticals shares trade higher by approximately 5% ahead of today's US open.


FX ranges are relatively muted given London's absence from the market, as EUR/USD registers just a 30 pip trading range. The USD trade marginally firmer against most others, as US stock futures slide into the read before Monday's open. Emerging market currencies continue to take the focus after the Jackson Hole Summit showed concern over the repercussions of Fed QE tapering. Nonetheless, the South African finance minister Gordhan has said the South African Reserve Bank has no plans to intervene in the FX market in order to appreciate the weakening ZAR. UBS lowered its AUD/USD 3 month forecast to 0.88 from 0.90. (Newswires)


Brent Crude futures have fallen back below USD 111/bbl at time of writing, but still hold near multi-month highs as Syrian tensions escalate and the threat of military intervention rises from Western powers. Spot gold briefly held the USD 1,400/ oz mark in Asian trading hours but fell back below ahead of today's COMEX open.

A senior Obama administration official said that there was “very little doubt” that President Bashar al-Assad’s military forces had used chemical weapons against civilians last week and that a promise to allow United Nations inspectors access to the site was “too late to be credible" (NY Times). According to other reports, the Syrian government accused rebels of using chemical weapons and warned the United States not to launch any military action against Damascus over an alleged chemical attack last week, saying such a move would set the Middle East ablaze. (New Zealand Herald) There were also reports that Royal Navy have been readied for possible strikes on Syria and that UK and US may start strikes on Syria within a week. Russia warned the US that any unilateral military action in Syria would undermine efforts for peace and have a devastating impact on the security in the Middle East.

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Concluding as always, is Jim Reid's summary of key events over the past day or two.

Risk markets have started the week on the front foot, having taken their lead from Friday where the S&P500 (+0.4%) and NASDAQ (+0.5%) both ended at or near the day’s highs. Indeed, the Hang Seng (+1.0%), Shanghai Composite (+1.4%) and KOSPI (+1.0%) are all seeing solid gains in excess of 1%. EM credit is quoted at tighter levels to start the week with Indonesian and Philippines CDS several basis points firmer this morning.

EM currencies are again under pressure this morning despite further reports of central bank intervention in FX markets (Brazil on Friday and Indonesia today). As we type, the Indian Rupee is 1.1% lower against the USD, the Indonesian Rupiah is swinging between gains and losses while the Malaysian Ringgit is a slightly weaker. The Turkish Lira and South African rand are also a touch lower against the greenback. This all comes in spite of a sharp 7bp rally in UST yields on Friday after disappointing US new home sales data for July which fell 13.4% m.o.m. (vs -2% expected) to 394k (vs 487k expected).

On a related note, the weekend’s headlines from the Jackson Hole economic summit were focused mostly around the spillover effects of Fed tapering on EM financial stability. The IMF’s Christine Lagarde warned that financial market reverberations “may well feed back to where they began” and called for greater “global coordination” to battle financial market instability. She proposed “further lines of defense” amongst global central banks such as currency swap lines. The comments provided somewhat of an offset to views from the Fed’s Lockhart who said that he was comfortable with a September tapering provided there are no ”really worrisome signals out of the economy between now and the 18th of September (the next FOMC meeting)”.

Amid the fallout over the recent rapid rise in US yields, global corporate bond issuance has this month fallen to the lowest level in five years. Just $61bn in investment grade corporate debt has been issued so far in August, putting it on course to be the weakest month since 2008, according to FT who cite data from Dealogic. In August last year, more than $121bn in new corporate debt was issued. Staying in fixed income, it was announced on Friday that Argentina had lost its appeal in a U.S. court order requiring it to pay $1.33 billion to hedge funds that refused to accept steep discounts when the nation restructured its debt more than a decade ago. According to Bloomberg, Argentina’s restructured dollar bonds due in 2033 fell 1.12cents to 61.05 cents on the dollar towards the close on Friday and yields on the securities climbed 0.50 ppt to 14.7%.

On the geopolitical front, there were a number of developments in Syria over the weekend worth highlighting. Firstly, the Syrian government has reportedly told Iran it will allow UN inspectors to visit areas reportedly affected by chemical weapons, according to the Iranian foreign minister, quoted on Iran's Press TV on Sunday. The Syrian opposition has accused government forces of using poison gas in Damascus suburbs on Wednesday – an accusation dismissed by the government. The US government has dismissed the offer as too little, too late, saying that the evidence available has been significantly corrupted as a result of the regime's persistent shelling and other intentional actions over the last five days. President Obama was said to be mapping out options to respond to the incident over the weekend. Late yesterday, newswires reported that the UK and US may be planning to launch military action against Syria within days including a series of cruise missile strikes against the Assad regime (FT). America’s Sixth Fleet currently has four guided missile destroyers in the area, each of which could join the attack. The UK’s Royal Navy has its rapid response task force in the Mediterranean. The group includes two frigates and the helicopter carrier HMS Illustrious, according to the article.

Today’s European markets may be a little more subdued due to UK bank holidays. But over the week ahead, markets will be keeping a close watch over the US data flow in the lead up to August payrolls Friday on September 6th. Indeed, DB’s US economists note that labor market indicators, such as the jobs plentiful/jobs hard-to-get component of the August consumer confidence report (Tuesday), jobless claims (Thursday), and the employment component of the Chicago PMI (Friday) take on added significance given the current debate on tapering. Labour market indicators aside, capital goods orders (Monday), the preliminary Q2 real GDP report (Thursday) and July personal income and spending (Friday) will provide important data points on the economic trajectory.

Today, San Francisco Fed president Williams (non-voter) speaks on a panel in Sweden on the “Challenges of Monetary Policy: Views from the Trenches”. However, our economists highlight that the most important speech may be on Friday, when St. Louis Fed president Bullard (voter) speaks on the economy and monetary policy. Given his recent history of dissent on the FOMC, any change in tone indicating that he is on board with a September taper may solidify market expectations that the beginning of the end of QE is near. In Europe, the data flow for the week begins with Tuesday’s German IFO where markets are expecting a 0.7pt improvement in the IFO expectations survey to 103.1 (which would be a five month high) and a 0.9pt improvement in the IFO Current Assessment to 111.0 (if correct, would be a one-year high).

Wednesday’s euroarea money supply data and Friday’s euroarea CPI are the other main data releases. In Japan, the key data release are retail sales on Thursday, and industrial production/CPI on Friday. It will be a relatively quiet week in China for data.